February 5, 2003

As I headed to Las Vegas last week to receive my "Legends" designation, and then to Beverly Hills to speak at a major annual real estate conference produced by Marty Stolzoff, I contemplated the year ahead.

We have entered an expanding period of uncertainty that will deepen volatility. Volatility is essentially an amount of time when unpredictability is as certain as change itself. It breeds discomfort, as well as soothsayers who pray that they have guessed the dates and events that propel fate into our business lives.

The first guesses have to do with how much the Republican Congress will accept the President's insistence on a huge tax cut, thereby ensuring that the deficit will be launched into the half-trillion dollar arena for a long time to come.

The political hacks will lighten this up with the simple notion that our economy is so much larger than a mere half-trillion, it will have no effect; except for the fact that government becomes a competitor for financing, thereby ensuring higher interest rates and more inflation than we've had for awhile.

What will pension funds be doing in this atmosphere? Not much except making certain that they have calculated the risks of losing money rather than how high the yield could be. Observers realize that the pro forma on investment yields -- except for government bonds -- is wishful praying for mischievous fate's mercy, of which there is little.

The "opportunity funds," loaded down with liquidity, will look for vacancies and foreclosures to increase so that they can place some of their funds into decaying, highly discounted properties and then raise some more money. So far that hasn't been the result in this region, though the pathway does contain more minefields of doubt and bewilderment as things soften.

Which markets are looking best to investors? San Diego, Chicago, Boston and Washington, D.C., are among the most favored, with blips and bumps appearing here and there. Remember that condition called uncertainty. Northern California keeps itself on the radar screen because of their past histories before the dot com fiasco. However, you must factor into these calculations the timing and the amount of holding time you are planning. Staying power means that you have enough money to service the debt when holding time expands and your investors will have less understanding and patience. Because of the severe budgetary problem facing so many states and cities, I would calculate pro forma taking longer and needing more reserves of cash.

More money will appear to have patience waiting for good times to reappear, but I tell you that this is as fake as most re-election rhetoric. They will be losing patience as fast as the true recovery zone stretches out. The fear is of the unknown, when most investors and promoters have no sense of timing, and intuition is proven or mocked.

The residential field appears the most lasting because of solid demand for land and willingness for buyers to keep boosting their purchase prices -- until interest rates rise.

The reality of war, wherein the people have begun to shift their feelings about "why", will begin to effect the consuming of goods and big ticket items. As the large antiwar rallies swell to a much larger size and volume, the media will spend more time measuring its power and all will depend on whether the president will recalculate his commitment to beginning the attack before this spring. History is ready to make a severe judgment call on this man and this action.

Historians will label this as "the time of uncertainty" and you can be certain that it will affect every business and investment strategy.

Goodkin has been a business ethicist and housing analyst since 1956. He may be reached at sanford.goodkin@sddt.com.